Co-ops the underdog in health insurance marketplace

Jan. 19, 2014
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Scantily clad models, right to left, Meghan McMahon, Sharayah Jones and Katina Shoemaker, hand out fliers and display signs encouraging the public to get health coverage under the Affordable Care Act during a promotional campaign launched by Colorado HealthOP, a health care co-op, in Denver in October. / Brennan Linsley, AP

by Kelly Kennedy, USA TODAY

by Kelly Kennedy, USA TODAY

WASHINGTON - Consumer-run health insurance cooperatives, which were included in the Affordable Care Act to stimulate competition and lower prices, have been stymied by the insurance industry and a lack of publicity, industry and health care experts say.

The consumer-operated and run insurance companies, called co-ops, are often funded by government loans. Cooperatives can sell their policies through the state and federal health insurance exchanges where Americans can buy coverage.

The co-ops have been created by consumer groups, doctors, membership associations - such as for small businesses - and other non-profit organizations with the idea that they will vote on a board made up of the co-op's enrollees in the first year.

Consumers may have not heard much about co-ops as an option, because opposition from the insurance industry forced the government to offer loans instead of grants to the co-ops, and to forbid co-ops from using any loan money to market their businesses.

Before the creation of the exchanges, cooperatives had a hard time breaking into markets, because it was difficult for them to get access, leaving some states with only one insurer. Boosted by the Affordable Care Act, the co-ops can now enter marketplaces in states like Maine, where the co-op is the only reason there is health insurance competition.

But limits on co-ops may make it hard for them to repay the $2 billion in federal loans they have received, said Kev Coleman, head of data and research at HealthPocket, a company that compares and rates health insurance plans.

"They have a series of challenges," he said. "They don't have existing brand awareness; they have a lot of administrative work to do to meet regulations; and they don't have existing revenue."

Concern about the co-ops popped up early, as America's Health Insurance Plans, a trade group for insurers, recommended in 2011 that the co-ops be treated the same way as private insurers and not be given any advantages in the marketplace.

AHIP argued that co-ops should not be exempt from taxes, should face the same Medicaid participation standards as traditional insurers, and that existing groups, such as churches, that may have offered plans in the past not be included. The group said its main concern was a "level playing field."

"Co-ops should not be permitted to avoid market standards and requirements applicable to other issuers of (qualified health plans)," wrote AHIP executive vice president Daniel Durham in a letter to the Centers for Medicare and Medicaid Services. "Establishing a different set of standards for co-ops in the exchange not only offends the guarantee issue requirements for an exchange, but creates an unfair advantage for co-op plans that poses a distinct threat of adverse risk selection and will threaten the willingness of other QHPs to participate in the exchange market."

SIGNS OF PROGRESS

Despite the obstacles facing cooperatives, the National Alliance of State Co-ops says their plans are gaining acceptance in more state markets. Co-ops have expanded into other states, such as Minuteman Health of Massachusetts, which will offer plans in New Hampshire, and the Kentucky Health Cooperative, which will go into West Virginia. The Montana Health CO-OP is planning to go into Idaho, too. And, after expecting 12,000 members in its first year, CoOportunity Health, which operates in Iowa and Nebraska, reported that 35,000 people have enrolled and they fall evenly in all age brackets, according to the alliance.

A report in November by the consulting firm McKinsey and Company found 37% of the lowest-priced plans in states with co-ops in their exchanges were offered by co-ops.

Co-ops must depend on conducting "consumer education" programs to make up for their lack of marketing, said Janie Miller, CEO of the Kentucky Health Cooperative and a former Kentucky insurance commissioner.

"A part of the mission of the co-op has been a fairly heavy grass-roots effort," she said.

As the exchanges launched, including Kentucky's state-based exchange, co-op members spoke to any organization that wanted to hear more about the Affordable Care Act. They explained benefit design, pricing and the definition of a co-op.

When Kentucky's health care exchange started to succeed, so did the state co-op, Miller said.

Nationwide, there are 23 co-ops, including two in Kentucky. In 2014, Miller said her co-op would convert its board to a partially elected consumer board, and then a fully elected consumer board in 2016. Kentucky received federal loans, but Miller said they went after private loans for their marketing campaign.

"When we compare the funding we had against the funding the major insurers had, we were surprised at how well we did with sort of our hands tied," she said. "I think a lot of people who appreciated we were out there to help people the previous markets weren't helping."

A CO-OP ADVANTAGE

Elliot Richardson, CEO of the Small Business Advocacy Council in Illinois, a small-business, non-partisan advocacy group for 800 Illinois companies, said the co-ops have an advantage.

"People may disagree about whether or not different aspects of Obamacare are positive or good," he said. "But the co-op aspect? Bringing more competition to the market? I would say most business owners think that's great."

In the past, he said big employers could negotiate with insurers, or even provide their own. But small businesses didn't have the power of many enrollees to negotiate.

"We had no voice," Richardson said. "Having an insurance company that we own. That we control. It's such a game-changer."

So far, he said, the co-op prices are "very, very competitive," and the benefits are good.

"If you just have four large companies without any competition, then there's no incentive to bring them down," he said.

For business owners with more than 50 employees, this will be important in 2014 as employers get ready for a 2015 requirement to provide insurance.

"We're very optimistic about the fact that Illinois was able to secure one of those co-ops," he said. "It's operated by members, and it's their duty to do their very best for us. That's exciting."